Microsoft eyes mobile music play

Microsoft may be moving beyond selling portable digital music players to hawking digital music over the airwaves. It said today it is negotiating with Openwave to buy the company’s mobile music platform, Musiwave, in order to integrate it with Microsoft’s consumer entertainment applications and the Zune platform.

Microsoft has signed an exclusivity agreement with Openwave to buy the Paris-based music unit, which has built relationships with record labels, device makers and mobile operators to offer its online and wireless downloadable music service. Musiwave’s focus is primarily in Europe, where it counts Vodafone and several other major operators among its customers, but it has landed one deal in North America with Telus.

The deal would give Microsoft its first presence in the mobile distribution space, creating a wireless compliment to the PC-based music services it offers for its Zune music player today. An acquisition of Musiwave is also likely to fit into the new social music strategy Microsoft announced today. Microsoft is creating an online music community called Zune Social that allows customers to access other Zune customers’ online profiles and access their favorite music. Microsoft is billing the service as the digital equivalent of the mix tape, allowing customers to share music in a new digital age where music is personal rather than community experience. While the Musiwave platform is intended to sell music from a white label portal rather than share it between customers, the Musiwave software is embedded in many of the GSM/UMTS phones used throughout Europe, giving Microsoft an instant point of entry to introduce new applications such as the Zune store and Zune social.

Microsoft has been producing enabling technology for digital music since its inception, building its Windows Media Player and Windows Media Audio (WMA) format with digital rights management (DRM) to protect copyright holders. It leveraged that technology into deals with wireless operators, most significantly Verizon Wireless, which sells its over-the-air music downloads in a pared-down version of the WMA format and uses Microsoft DRM. But Microsoft has clearly stated it plans to move beyond offering mere software to offering software plus services. Just as the Zune player was designed to compete with Apple’s ubiquitous iPod, the Zune music store is intended to go head-to-head with Apple’s iTunes.

Apple, too, has been moving into the mobile music space, launching the iPhone first with AT&T in the U.S. last summer and last week in Europe with T-Mobile Germany and Telefonica O2 in the U.K. Apple, however, has been reluctant to fully embrace mobile access to the iTunes store, limiting music to sideloads from the PC initially and later allowing music downloads to the phone only over Wi-Fi. Apple, however, is expected to release a 3G version of the iPhone sometime next year, which would support full-track over-the-air downloads of music from the iTunes store, bringing Apple fully into the mobile music fold.

Microsoft’s strategy for mobile music is less clear. While it continues to drive WMA into more music phones and into more carrier platforms, its own services strategy doesn’t have the obvious launch point of Apple and other competitors like Nokia. Nokia last summer unveiled plans for the Ovi music store, a platform powered by its acquisition of Loudeye, to sell music directly to Nokia-phone owners. While the announcement drew skepticism from analysts, European carriers quickly got on board with Nokia as both Telefonica O2 and Vodafone agreed to support the portal.

Apple is clearly using mobile music as a way to drive purchases of its own iPod hardware, while Nokia is using its dominance in the handset market to turn itself into a services provider. Microsoft doesn’t have any device platform to launch its mobile music service on, short of building a Zune phone. The software giant, however, may take the same approach to mobile music as its taken to its handset operating system, Windows Mobile. It may look to have its music player and portal software embedded on other devices, working with its installed base of Windows Mobile smartphone manufacturers and--if its deal with Openwave is finalized--with Musiwave’s handset base